In its response to the House of Commons Treasury select committee report published in March that criticised HMRC’s “flawed” calculation of the tax gap, the government said its £35bn estimate was useful in “quantifying types and causes of non-compliance by tax regime and customer group”.

The government also rejected the committee’s suggestion to commit to a structured programme for implementing recommendations from the Office of Tax Simplification.

The government dismissed another committee proposal for a general tax disclosure facility that would be easy for all taxpayers to understand. “It is important to balance this with the need to ensure that the tax system remains fair for the honest majority who pay their taxes in full and on time, and that those who undertake to pay less than they should, do not gain an unfair advantage,” the government said.

HMRC uses the controversial tax gap figure to plan resource deployments and assess long-term trends, helping the government make strategic investment choices to tackle avoidance, evasion and criminal attacks. This methodology underpins its Spending Review target to generate additional revenues of £7bn a year by 2014–15, the government said.

HMRC accepted that tax gap measures may have “limitations”, the government said, and that the current measures were not sufficiently accurate or timely to use for setting targets and performance measurement.

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Replies

"This methodology underpins its Spending Review target to generate additional revenues of £7bn a year by 2014–15, the government said."

What does this mean, is it to generate -

1 an extra £7billion revenue; or

2 £7billion of the £35billion tax gap that may, or may not be right, accurate or simply a guess; or

3 £7billion of the amount that simply goes uncollected through inefficiency, poor resource allocation or plain incompetence at planning level; or

4 £7billion from issuing correct PAYE codes?

The biggest limitation to measuring the tax gap, whatever that may be, is HMRC itself. It's like the figures Royal Mail publishing the number of letters it loses. How do you count what you do not know is there?

And another thing. What does fair mean? It starts from the presumption that somebody else is entitled to put their hands into your pockets, take the amount that pickpocket feels is "fair" and spend it on something that you might, but probably will not, benefit from or consider worthwhile; or use it to pay the interest on the amounts the preceding administrations borrowed before you were born and have continued to do so ever since. Put 2 people in a room and you will get at least three opinions of what is fair.